19-2547-cv SM Kids, LLC v. Google LLC
1 In the 2 United States Court of Appeals 3 For the Second Circuit 4 5 6 August Term 2019 7 8 No. 19-2547-cv 9 10 SM KIDS, LLC, AS SUCCESSOR-IN-INTEREST TO STELOR 11 PRODUCTIONS, LLC, 12 13 Plaintiff-Appellant, 14 15 v. 16 17 GOOGLE LLC, ALPHABET INC., XXVI HOLDINGS INC., JOHN AND/OR 18 JANE DOES 1-100, INCLUSIVE, 19 20 Defendants-Appellees. * 21 22 23 24 Appeal from the United States District Court 25 for the Southern District of New York 26 No. 18-cv-2637, 27 Lorna G. Schofield, District Judge, Presiding. 28 (Argued March 12, 2020; Decided June 25, 2020) 29 30 31 Before: PARKER and LOHIER, Circuit Judges, and EATON, Judge. †
*The Clerk of Court is directed to amend the caption to conform to the above. †Richard K. Eaton, Judge of the United States Court of International Trade, sitting by designation. 1 Plaintiff-Appellant SM Kids, LLC sued Google LLC and several related 2 entities, seeking to enforce a 2008 agreement settling a trademark dispute. 3 Defendants-Appellees moved to dismiss for lack of standing, pursuant to Fed. R. 4 Civ. P. 12(b)(1), arguing that SM Kids did not own the subject trademark, as it 5 had been improperly assigned by SM Kids’ predecessor, which had executed the 6 settlement agreement. The United States District Court for the Southern District 7 of New York (Schofield, J.) received evidence on the matter, found that the 8 trademark assignment was invalid, and dismissed for lack of subject-matter 9 jurisdiction. We hold that the validity of the trademark was not a jurisdictional 10 matter related to Article III standing but was instead a merits question properly 11 addressed on a motion under Fed. R. Civ. P. 12(b)(6), a motion for summary 12 judgment, or at trial. Accordingly, we VACATE the judgment of the district 13 court and REMAND for further proceedings consistent with this opinion. 14 15 JOHN M. MAGLIERY (Geoffrey S. 16 Brounell, L. Danielle Toaltoan, on the 17 brief), Davis Wright Tremaine LLP, New 18 York, NY, for Plaintiff-Appellant. 19 20 BRENDAN J. HUGHES (Rebecca Givner- 21 Forbes, Ian R. Shapiro, on the brief), 22 Cooley LLP, Washington, DC, for 23 Defendants-Appellees. 24 25 26 BARRINGTON D. PARKER, Circuit Judge:
27 SM Kids, LLC appeals from a judgment of the United States District Court
28 for the Southern District of New York (Schofield, J.) dismissing its complaint
29 alleging breach of a settlement agreement for lack of Article III standing. See Fed.
30 R. Civ. P. 12(b)(1). The district court concluded that it lacked jurisdiction because
31 SM Kids had not been validly assigned the trademark that was the subject of the
2 1 settlement by the trademark’s prior owner. We hold that the question of whether
2 the trademark assignment was valid was a merits and not a jurisdictional
3 question. Accordingly, we VACATE the judgment of the district court and
4 REMAND for further proceedings consistent with this opinion.
5 The facts as found by the district court are as follows. 1 In 1995, Steven
6 Silvers created the Googles brand. Two years later, he registered the Googles
7 trademark and the internet domain name www.googles.com. The website
8 launched in 1998 as a children’s education and entertainment website. That year,
9 the search engine Google adopted the Google name. Subsequently, in 2005,
10 Silvers sued Google for trademark infringement. In February 2007, Silvers
11 assigned all rights in Googles to Stelor Productions, LLC. In December 2008,
12 Google and Stelor settled the trademark infringement litigation.
13 As the trademark infringement litigation unfolded, in 2006 Stephen
14 Garchik invested in Stelor. The company soon defaulted on Garchik’s loans.
15 Following a bankruptcy proceeding, in 2011 Stelor assigned the “entire interest
16 and the goodwill” of the Googles trademark to Garchik, doing business as
1Because Google brought its motion under Rule 12(b)(1), the district court relied on materials outside the pleadings and made factual findings. See Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). We address a question of law but refer to the district court’s findings for relevant background information. 3 1 Stelpro Loan Investors, LLC. Sp. App’x at 7. By that point, the Googles website
2 remained operational, but there is some evidence that its content was static and
3 quickly grew outdated. In January 2013, Garchik transferred the Googles assets
4 to SJM Partners, a company of which he is the sole owner. Following this
5 transfer, Garchik replaced the Googles website with a “coming soon” page,
6 posted a solicitation for joint venture partners, and added some audiovisual
7 content. Finally, in February 2018, SJM Partners transferred the Googles assets to
8 Plaintiff-Appellant SM Kids, a newly formed firm owned by Garchik.
9 In February 2018, SM Kids sued Google LLC, Alphabet Inc., XXVI
10 Holdings Inc., and 100 John and/or Jane Doe defendants (collectively, “Google”)
11 in New York County Supreme Court, alleging that Google had breached the 2008
12 settlement agreement. That agreement prohibited Google from “intentionally
13 mak[ing] material modifications to its [then-]current offering of products and
14 services in a manner that is likely to create confusion in connection with
15 [Googles].” J. App’x at 57-58. More specifically, Google agreed not to “create,
16 develop and publish children’s books, fictional children’s videos, or other
17 fictional children’s related content that have a title of ‘GOOGLE’ or a ‘GOOGLE-‘
18 formative title or mark.” Id. at 58.
4 1 The complaint alleged that Google had breached that agreement by
2 creating Google Play and YouTube Kids, which publish and distribute children’s
3 content. SM Kids further objected to Google’s acquisition of several children’s
4 entertainment businesses, including Launchpad Toys and the “Toontastic”
5 application.
6 Google, invoking diversity jurisdiction, removed the lawsuit to the
7 Southern District of New York, where it moved to dismiss the complaint
8 pursuant to Rules 12(b)(1) and 12(b)(6). Principally, Google argued that SM Kids
9 lacked standing to sue because it never validly acquired the Googles trademark,
10 and only the holder of that trademark could enforce the settlement agreement.
11 Before the motion was fully briefed, the district court denied it without prejudice
12 and ordered that discovery be stayed except as to the issues of standing and
13 subject-matter jurisdiction. SM Kids unsuccessfully objected to this procedure on
14 the ground that the validity of the trademark assignment was a merits rather
15 than a jurisdictional question.
16 Google took discovery from SM Kids and then renewed its motion to
17 dismiss, pursuant only to Rule 12(b)(1). Relying on materials outside the
18 complaint that had been generated during discovery, the district court found that
5 1 SM Kids had not shown by a preponderance of the evidence that it had validly
2 acquired the trademark. The court held that a valid assignment requires that the
3 mark be used in commerce and found that the mark was not used in commerce
4 from 2010 to 2018, when it was assigned to SM Kids. Specifically, it found that
5 the Googles website had not been used to identify goods or services sold to
6 consumers because it was merely a “coming soon” page. Treating this deficiency
7 as jurisdictional, the district court granted the motion to dismiss. This appeal
8 followed.
9 DISCUSSION
10 A motion to dismiss for lack of Article III standing challenges the subject-
11 matter jurisdiction of a federal court and, accordingly, is properly brought under
12 Fed. R. Civ. P. 12(b)(1). See Carter v. HealthPort Techs. LLC, 822 F.3d 47, 56 (2d Cir.
13 2016). When a motion under Rule 12(b)(1) is based solely on the complaint and
14 the attached exhibits, the plaintiff bears no evidentiary burden, and the district
15 court must evaluate whether those documents allege facts that plausibly suggest
16 that the plaintiff has standing to sue. Id. We review the grant of such a motion de
17 novo. Id. However, a motion under Rule 12(b)(1) may also rely on evidence
18 beyond the pleadings. Id. at 57. When a defendant makes such a fact-based
6 1 motion, the plaintiff may respond with evidence of its own. Id. We then review
2 the district court’s legal conclusions de novo and its factual findings for clear
3 error. Makarova, 201 F.3d at 113. In this case, the district court relied on evidence
4 outside the pleadings. Nonetheless, the question we address on review is
5 exclusively a question of law and, consequently, our review is de novo. See
6 Kreisler v. Second Ave. Diner Corp., 731 F.3d 184, 187 n.3 (2d Cir. 2013).
7 I.
8 Article III, Section 2 of the Constitution limits the subject-matter
9 jurisdiction of the federal courts to “Cases” and “Controversies.” E.g., Dhinsa v.
10 Krueger, 917 F.3d 70, 77 (2d Cir. 2019). The standing doctrine, which emerges
11 from Article III, is designed “to ensure that federal courts do not exceed their
12 authority as it has been traditionally understood.” Spokeo, Inc. v. Robins, 136 S. Ct.
13 1540, 1547 (2016). The doctrine imposes three requirements: “[t]he plaintiff must
14 have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged
15 conduct of the defendant, and (3) that is likely to be redressed by a favorable
16 judicial decision.” Id.
17 In its motion to dismiss, Google argued that SM Kids lacked Article III
18 standing because it was not the holder of the Googles trademark. More
7 1 specifically, it contended that a trademark is assignable only “with the good will
2 of the business in which the mark is used,” and the mark must be in “actual use
3 in the marketplace” and “employed to identify goods or services sold to
4 consumers in a given market.” 15 U.S.C. § 1060(a)(1); Cross Commerce Media, Inc.
5 v. Collective, Inc., 841 F.3d 155, 167 (2d Cir. 2016); Berni v. Int’l Gourmet Rests. of
6 Am., Inc., 838 F.2d 642, 646 (2d Cir. 1988).
7 Google contended that the Googles mark had not been used in commerce
8 and, therefore, could not be assigned to SM Kids. Because SM Kids was not the
9 holder of the mark, Google reasoned, it had no rights under the settlement
10 agreement and did not have a legally protected interest whose impairment could
11 be redressed in a lawsuit. In other words, it had not suffered an injury in fact.
12 The district court agreed and concluded that, because SM Kids lacked Article III
13 standing, the court did not have subject-matter jurisdiction.
14 We do not agree that the validity of the assignment was a question of
15 Article III standing. Instead, the question was one of contractual standing, which
16 asks a different question: whether a party has the right to enforce a contract.
17 Contractual standing is distinct from Article III standing and does not implicate
18 subject-matter jurisdiction. Article III standing speaks to the power of a court to
8 1 adjudicate a controversy; contractual standing speaks to a party’s right to relief
2 for breach of contract. Although the question of whether Google breached a
3 contract with SM Kids depends on whether SM Kids enjoyed a contractual
4 relationship with Google, the existence of such a relationship is not a prerequisite
5 to a court’s power to adjudicate a breach-of-contract claim.
6 SM Kids produces content under the name Googles, and it alleges that
7 Google confusingly produces similar content under its own name, in breach of a
8 contract. SM Kids plausibly alleges that the availability of Google’s content—
9 which allegedly violates the settlement agreement—has injured the popularity of
10 Googles content and thereby caused it economic injury. That injury could be
11 redressed by injunctive or monetary relief. As a result, the three requirements of
12 Article III standing are satisfied.
13 Whether Google might have a defense based on trademark or contract law
14 does not change this result. A contest between a plausibly alleged claim and a
15 defense exists in many, if not most, breach-of-contract lawsuits, and typically,
16 one party wins and the other loses. Under Google’s approach, courts would lack
9 1 jurisdiction in most instances where a breach-of-contract plaintiff failed to prove
2 the existence of a contract.2
3 The Supreme Court has confirmed that a challenge does not implicate
4 Article III standing when it “simply presents a straightforward issue of contract
5 interpretation.” Perry v. Thomas, 482 U.S. 483, 492 (1987). Whether the elements of
6 breach of contract, including the existence of a contract, are satisfied, that Court
7 has said, goes to the merits, not to a court’s power to resolve the controversy. In
8 Perry, the petitioners invoked federal jurisdiction to compel arbitration. The
9 respondent contended that two of the petitioners lacked standing because they
10 were not parties to the arbitration agreement. The Court rejected the contention
11 that resolving that issue was a prerequisite to Article III standing. Constitutional
12 standing, the Court reasoned, was not the threshold inquiry when a litigant’s
13 contention was that his opponents were not parties to an agreement. Because
14 contractual standing goes to the merits, and “[o]ur threshold inquiry into
2 Under Fed. R. Civ. P. 12(h)(3), “[i]f the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action.” “Where a court lacks subject matter jurisdiction, it also lacks the power to dismiss with prejudice.” Hernandez v. Conriv Realty Assocs., 182 F.3d 121, 123 (2d Cir. 1999). Treating contract formation as jurisdictional would therefore call into question a federal court’s ability to issue a claim-preclusive judgment that a contract did not exist. 10 1 standing ‘in no way depends on the merits of the [plaintiff’s] contention that
2 particular conduct is illegal,’” contractual standing is not a matter of
3 constitutional standing. Whitmore v. Arkansas, 495 U.S. 149, 155 (1990) (quoting
4 Warth v. Seldin, 422 U.S. 490, 500 (1975)); see also Bond v. United States, 564 U.S.
5 211, 219 (2011) ( “[T]he question whether a plaintiff states a claim for relief ‘goes
6 to the merits’ in the typical case, not the justiciability of a dispute . . . .” (quoting
7 Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 92 (1998))).
8 Our cases reach the same conclusion. In Carver v. City of New York, 621 F.3d
9 221, 226 (2d Cir. 2010), we held that “[t]he standing question is distinct from
10 whether [a plaintiff] has a cause of action.” We have cautioned against
11 arguments that “would essentially collapse the standing inquiry into the merits,”
12 Baur v. Veneman, 352 F.3d 625, 642 (2d Cir. 2003), and attempts to “conflate the
13 threshold question of [the plaintiff’s] standing under Article III . . . with the
14 question of whether [he] has a valid claim on the merits,” Lerman v. Bd. of
15 Elections, 232 F.3d 135, 143 n.9 (2d Cir. 2000). 3 This body of law means that a
3The other circuits are in accord that contractual standing goes to the merits of a claim rather than to the existence of subject-matter jurisdiction. Rocky Mountain Helium, LLC v. United States, 841 F.3d 1320, 1324-25 (Fed. Cir. 2016); Cotton v. Certain Underwriters at Lloyd’s of London, 831 F.3d 592, 594-96 (5th Cir. 2016); Cornhusker Cas. Co. v. Skaj, 786 F.3d 842, 851 (10th Cir. 2015); Lindsey v. Starwood 11 1 party that alleges harm due to another’s breach of a contract has a justiciable
2 controversy with the other party and that the courts have jurisdiction to resolve
3 the controversy. See United States v. Cambio Exacto, S.A., 166 F.3d 522, 528 (2d Cir.
4 1999).
5 II.
6 Additional support for this conclusion comes from the Supreme Court’s
7 decisions cautioning lower courts from reading jurisdictional limitations into
8 substantive statutory provisions. The relevant provision of the Lanham Act on
9 trademark assignments, 15 U.S.C. § 1060, provides that a trademark is assignable
10 only “with the good will of the business in which the mark is used.” It requires
11 that the mark be used in commerce. Cross Commerce Media, 841 F.3d at 167. As
12 noted, the district court treated this section as a jurisdictional hurdle. It reasoned
13 that because the Googles mark was not used in commerce, SM Kids could not
14 have been validly assigned the trademark and consequently the court lacked
15 subject-matter jurisdiction.
Hotels & Resorts Worldwide Inc., 409 F. App’x 77, 78 (9th Cir. 2010) (memorandum opinion); Novartis Seeds, Inc. v. Monsanto Co., 190 F.3d 868, 871 (8th Cir. 1999).
12 1 But § 1060 does not mention jurisdiction. The Supreme Court has
2 emphasized that federal courts should not treat statutory provisions as
3 jurisdictional thresholds when they do not speak in jurisdictional terms. Zipes v.
4 Trans World Airlines, Inc., 455 U.S. 385, 394 (1982). Arbaugh v. Y&H Corp., for
5 example, held that an element of a statutory claim was not jurisdictional when
6 the plaintiff pleaded “a colorable claim ‘arising under’ the Constitution or laws
7 of the United States,” absent a contrary indication of congressional intent. 4 546
8 U.S. 500, 513 (2006). A statutory requirement should be treated as jurisdictional,
9 the Court went on to say, only when Congress “clearly states” as much and
10 “duly instruct[s]” courts and litigants that the issue is jurisdictional. Id. at 515. If
11 this language is not present, and Congress does not rank a statutory limitation as
12 jurisdictional, courts should treat the restriction as nonjurisdictional in character.
13 This rule is designed to be a “readily administrable bright line” test. Id. at 516.
14 Nothing in § 1060 suggests that Congress intended to limit the broad grant of
15 federal question jurisdiction in § 1331 and diversity jurisdiction in § 1332 as to
4 This result does not change because this case arises under diversity, rather than federal question, jurisdiction. Arbaugh articulates the general rule that “statutory limitations should not be understood to limit the subject matter jurisdiction of the courts unless that is the ‘clearly’ stated intention of the statute.” United States v. Prado, 933 F.3d 121, 135 (2d Cir. 2019). Congress must clearly state such an intention anytime it imposes a jurisdictional limitation. 13 1 exclude cases where trademarks were assigned without accompanying good
2 will. See Fed. Treasury Enter. Sojuzplodoimport v. Spirits Int’l N.V., 623 F.3d 61, 71
3 (2d Cir. 2010) (holding that when claims arise under the Lanham Act,
4 “jurisdiction exists not only over the infringement claims but also over the
5 antecedent issue of the validity of the assignment”); Berni, 838 F.2d at 645-46
6 (treating “standing” under the Lanham Act as nonjurisdictional); cf. Reed Elsevier,
7 Inc. v. Muchnick, 559 U.S. 154, 161-62 (2010) (citing Arbaugh in holding that the
8 Copyright Act’s registration requirement is not jurisdictional).
9 In La Quinta Worldwide LLC v. Q.R.T.M., S.A. de C.V., 762 F.3d 867 (9th Cir.
10 2014), the court considered a “use in commerce” provision of the Lanham Act,
11 which is similar to the requirement of use in commerce in § 1060, the “good will”
12 provision at issue here. The court held that this provision was an element of a
13 Lanham Act claim rather than a jurisdictional requirement. Id. at 873. The court
14 explained that because the “use in commerce” element of claims under Sections
15 32 and 43(a) of the Act was not structurally connected to the statute’s
16 jurisdictional grant, 15 U.S.C. § 1121, “use in commerce” was a substantive
17 element and not a jurisdictional issue. La Quinta, 762 F.3d at 873. Section 1060
18 similarly lacks a structural connection to § 1121 and mentions no limitation on
14 1 the availability of jurisdiction under 28 U.S.C. § 1331 or § 1332. Consequently, it
2 is not jurisdictional. Cf. Spokeo, 136 S. Ct. at 1549 (emphasizing that whether a
3 plaintiff has a cause of action under a statute does not determine whether it
4 possesses Article III standing); Lexmark Int’l, Inc. v. Static Control Components, Inc.,
5 572 U.S. 118, 128 (2014) (same).
6 III.
7 Google urges us that any error in the procedures used by the district court
8 was harmless because it reached a correct result. Maybe so, maybe not: but we
9 are not now at that point. Because the court resolved Google’s motion as a fact-
10 based motion under Rule 12(b)(1), it considered evidence beyond the complaint.
11 It also placed on SM Kids the burden of proving subject-matter jurisdiction. Had
12 the district court treated the motion as one under Rule 12(b)(6), its review would,
13 of course, have been limited to the complaint, to documents attached to the
14 complaint or incorporated by reference, and to documents of which the district
15 court could have taken judicial notice. In addition, the facts alleged in the
16 complaint would have been accepted as true and all factual inferences drawn in
17 SM Kids’ favor. SM Kids, on the other hand, would have been required to plead
15 1 only a plausible claim to relief and the burden to show otherwise would have
2 fallen on Google. See Lerner v. Fleet Bank, N.A., 318 F.3d 113, 128 (2d Cir. 2003).
3 In the alternative, if the district court received and elected not to exclude
4 matters outside the pleadings, Rule 12(d) presented it with only two options:
5 exclude the additional material or convert the motion to one for summary
6 judgment. See Palin v. N.Y. Times Co., 940 F.3d 804, 810-11 (2d Cir. 2019). At that
7 point, Google would have borne the burden under Rule 56(a) of demonstrating
8 the absence of a genuine issue of material fact.
9 We have no doubt that the able district judge’s approach was animated by
10 entirely understandable concerns of efficiency intended to save the time and
11 resources of the parties and the court. But rules matter, and procedural regularity
12 and evenhandedness matter, as well. “[D]espite the flexibility that is accorded
13 district courts to streamline proceedings and manage their calendars, district
14 courts are not free to bypass rules of procedure that are carefully calibrated to
15 ensure fair process to both sides.” Id. at 812.
16 Suffice it to say, we do not speculate about what results procedures not
17 followed might have yielded. Nor do we reach the questions of validity of the
16 1 assignment of the Googles mark and whether SM Kids possesses contractual
2 standing. Instead, we remand to the district court.
3 CONCLUSION
4 For the foregoing reasons, the judgment of the district court is VACATED,
5 and the case is REMANDED for further proceedings consistent with this
6 opinion.